Is the Global Minimum Tax Fair?

By: Daniel Lee

The Organization for Economic Cooperation and Development (OECD) recently led the charge on implementing a 15 percent global minimum tax on “companies with annual revenue of more than 866 million dollars.” The chief reasoning behind this decision is to make “international tax arrangements fairer and [to have them] work better,” according to the OECD’s Secretary General, Mathias Cormann. However, in creating a “fairer” society, it is likely that the tax will have both a unifying and dividing effect.

The unifying effect, broadly speaking, involves the unification of global governments “against” high-revenue corporations. The divisive effect would be marked by a conflict between governments with “fair” corporate taxation practices (higher taxes) and “unfair” lower taxes that have traditionally been associated with countries such as Ireland.

While Ireland and other holdout countries such as Estonia and Hungary have since agreed to the deal, such countries have been able to negotiate exemptions from the tax deal that could lead to conflict. However, without regulation, the seemingly benevolent leniency of countries that support the global minimum tax, such as France–whose finance minister Bruno Le Maire stated that “we are totally open” to proposals for “a transition period” to move to the tax–could clearly lead to conflict on the nature of such a “transition period.”

Aside from the two effects described, another line of reasoning for the implementation of the tax involves the argument that the tax will create a predicted 150 billion dollars in global tax revenue each year, which could supposedly be reinvested into countries’ capital and infrastructure. This appears to be a compelling argument at face value, if 150 billion dollars per year is somehow deemed a sufficient amount to help economies around the world invest in infrastructure. This is a big “if,” given the 1.2 trillion-dollar infrastructure overhaul bill in the United States alone; despite the U.S.’s shortcomings in infrastructure compared to other developed nations, this cost is still for infrastructure improvement rather than infrastructure creation, as would be the case for many underdeveloped countries. Yet the question then arises: how would these 150 billion dollars be “fairly” allocated?

The global corporate tax would apply to countries that host corporations and to countries who consume the goods of large tech giants, such as Amazon and Facebook. However, wealthier, English-speaking countries would clearly hold an advantage over smaller countries when bringing in corporations, and the tax would go to these same wealthier countries. They would thus get a higher proportion of the “150 billion dollars.” It is no wonder that most tax-haven countries prior to the tax deal tended to be smaller ones with fewer domestic resources. We must ask whether it is truly ethical to harm these smaller countries for the sake of extracting money that must rightfully be paid to governments by large corporations. Furthermore, countries such as Russia and China, who have “many mouths to feed,” also depend on capital and would be interested in updating their infrastructure, like the U.S. has recently moved to do. In the case of China, in particular, which hosts many corporations, this behavior would likely give a higher proportion of tax revenue to China at the cost of smaller countries.

Even if these smaller countries are given exceptions to the tax rule in some form (such as the ability to exempt domestic corporations from the tax, as is the case in Ireland) their domestic firms will have challenges competing with larger, established firms, even if those take revenue cuts. That being said, due to its more trend-biased nature, the tech industry is more welcoming to unestablished corporations, compared to, for instance, the soft drink industry which is dominated by nostalgic hallmarks such as Coca-Cola and Pepsi. This lattermost factor thus may be less important. Regardless, the question of “fairness” for the global minimum tax goes far deeper than it appears.